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Navigating 2021 Tax Season as a Freelancer • Indiana Lee Take a deep breath and get organized

There’s no doubt that 2020 has been a hectic year financially speaking, and freelancers haven’t been immune to the suffering. On the contrary, the response to COVID-19 devastated many freelancing careers. Photographers lacked venues and rideshare drivers’ cars idled as quarantines took place and people generally eschewed group gatherings.

If you’re a freelancer, you’re likely scratching your head as you wonder how to approach the 2021 tax season — and you’re certainly not alone. The number of questions, both normal and unique, are legion.

It’s impossible to address every question from every situation. However, here are a few things to keep in mind when it comes to summing up your 2020 income and expenses, along with a few tips and reminders that you should always remember when tax season rolls around.

Disclaimer: This is not formal or professional tax advice. It is merely an experienced and encouraging reminder to keep your head up and be prepared for the complex tax season that lies ahead.

Take Some Time to Get in the Right Mindset

Before you put pen to paper or pull up a spreadsheet, take a moment to compose yourself. Seriously. You’re about to dive into one of the least fun parts of freelancing — during one of the worst years in recent memory, no less. This is going to be a slog. It’s going to be stressful at times. (After all, that’s why a flat tax has always been such a popular theory, right?)

Nevertheless, the inherent work that comes with doing your taxes doesn’t mean you need to surrender to pessimism or make yourself a martyr.

Remember, you chose to freelance for a reason, whether that was for the flexibility, the adjustable schedule, or simply the thrill of being your own boss. Whatever the reason, doing your taxes was always a part of that freelancing dream. It isn’t pretty, and you may not love it, and that’s okay.

All you need to do now is focus and get the work done. Then you can reset and prepare for the year ahead. Alright, are you ready? Let’s do this.

Considerations for 2021

There’s no doubt that 2021 was a unique year for business. With that said, here are a few of the major factors that you’re going to want to keep on your radar as you go to file your taxes:

• Stimulus checks: If you got one or two stimulus checks last year, the good news is you won’t have to pay taxes on them as they don’t count as income.

• PPP loans: If you were able to qualify for a Paycheck Protection Program (PPP) loan, you must ensure that it is forgiven. Once that happens, it is also not considered taxable income.

• EIDL grants: Many freelancers were able to qualify for an Economic Injury Disaster Loan (EIDL) grant. As a grant, it is considered tax-exempt as well.

• Unemployment payments: Any unemployment income must be reported on your taxes, as it is considered taxable income.

All of these are true at the time of this writing. However, the one other major suggestion here is that you keep a sharp eye on any developments that could change this information.

Other Tax Tips to Keep in Mind

Along with the unique factors that are mucking things up this year, it’s important to remember your normal self-employment tax activities as well:

• Gather the right forms: As a freelancer, you most likely will need to fill out a Schedule SE form, a 1040 form, a Schedule C form, and forms for any local and state taxes you may owe.

• Calculate your income: If you’re like many freelancers, you may not have a ton of income to report this year. However, anything you did make should be added up, along with any unemployment payments you received.

•Add up your expenses: Even if you didn’t make much money, there’s a good chance that you had some business-related expenses. This could be internet bills, electronic devices, or mileage. Make sure you have your expenses gathered and ready when you go to fill out your forms.

• 1099s and other forms: You’re also going to want to have any formal paperwork, such as a 1099 from a client, ready to hand when you start the tax process.

• Personal info: You also will want to have all of your personal information handy. This includes everything from your name, date of birth, and Social Security number to health insurance information, property tax payments, charitable donations, and any other tax-related info.

While you can always fetch items and information as you go, preparing as much as you can beforehand is always a good idea. It speeds up the process and can make the entire activity less overwhelming.

Prep for the Upcoming Year

Once you’re done with your taxes, it’s tempting to set it all aside and focus on something else. However, this is a great time to make tweaks and changes to your ongoing freelancing systems to make next year’s taxes that much easier. A few of the ways that you can do this include:

• Creating spreadsheets or using an app to track your income and expenses throughout the year.

• Proactively paying your quarterly taxes to both the state and IRS.

• Setting up an LLC or S-corp to protect yourself — as a freelancer, you’re considered a sole trader.

• Finding an accountant that you can trust to help you with any tax questions throughout the year.

By prepping now, you can save yourself many a headache in the weeks and months leading up to next April 15th.

Prepping Taxes After a Crazy Year

As long as there’s still the classic tax reform shuffle going on, it’s going to be challenging to do your taxes. This is especially true if you’re a freelancer that has gone through the chaotic year 2020. From pandemics and quarantines to stimulus checks and unemployment payments, there are a million things to take into consideration as you go to file your taxes.

If at all possible, consider enlisting professional help when you go to do so. Hire an accountant to do your taxes. Use a software program to help you along. If there was ever a year to get a leg up with your taxes, this is it.

Even if you can’t afford help, though, you’re still okay. Just take that deep breath before you start, gather everything you can beforehand, and do your homework as you go along. If you take things one step at a time, you’ll be able to pull your taxes together without too much effort, and before long you’ll be able to get back to focusing on the year ahead.

© Indiana Lee 1.1.21
indianaleewrites.contently.com

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